One of the great mysteries of Internet life is Japan. This country should be Net-crazy. It produces some of the world’s best hardware, is quick to exploit new technologies in most walks of life and has an unquenchable passion for gadgets and trends. That should add up to a country that makes cyborgs look like pikers.

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Yet only 14 million Japanese — about 10 percent of the population — are on the Internet. That might not look so bad, but the comparable figure in the United States is 30 percent, in Australia 23.4 percent, in Singapore 14.7 percent, and in Denmark 22 percent; in Iceland, a whopping 45 percent of the island is online. There are explanations for the ease with which smaller countries get wired, but Japan’s lag is still surprising.

What gives? The best explanation for the gap between my expectations and Japanese reality is contained in a new study by DSA Analytics, a Washington-based consultancy. “The Internet User and Online Commerce in Japan, 1999,” released last month, is a penetrating analysis of Japan’s Netizens and their online behavior.

The numbers are familiar. About 14 million people are online, and they spend about 200 billion yen each year on e-commerce. The average Japanese cybershopper drops about 35,000 yen annually. DSAA predicts that by 2001 the online population will just about double — to 27 million — and spending could reach 1 trillion yen.

Not surprisingly, most Internet users are men (about 80 percent) and most are concentrated in the 21-40 age cohort (also about 80 percent). About 60 percent of users are company employees.

The numbers are solid, but the interesting parts of the analysis are the changes that DSAA anticipates in the market and their implications for businesses.

The most important trend is the growing number of women users. Although they account for only 21 percent of Net users as of September 1998, five years ago they represented less than 10 percent. That stunning growth is expected to continue: DSAA concludes that “by mid-1999, women may account for nearly half of all new Internet participants.”

Rachel Howe, managing director of DSAA, explained in a telephone interview that “women are steadily changing the face of the Japanese Internet, which will have profound implications for the types of goods and services that the Japanese online market will have to offer … “

One of the reasons that men now dominate the Japanese Net population is that the vast majority of users log on at the office. DSAA estimates that about 70 percent of all Internet connections are made from the workplace; about 25 percent log on at home and the remainder at school. It also explains the demographic bulge with respect to age: Most salarymen are in the 21-40 age bracket.

Why is the office the preferred place to log on? Cost. The study concludes “most Internet users think that the Internet is too expensive to access and too slow to use once they get online.” As Howe explained, “high phone rates are far and away the most frequently cited reason in every survey we looked at for why people don’t log on more.”

Howe dismisses claims that Japan’s low Internet use has anything to do with culture. For example, half of Japan’s Netizens are likely to shop online; in the U.S., the comparable figure is about 33 percent. So much for the vaunted Japanese preference for face-to-face dealings.

Rather, Howe believes, the Japanese government has deliberately restrained the spread of the Net to give the domestic industries that will benefit from widespread usage a chance to prepare. “You lower phone rates only when your constituency is ready — not when the U.S. content providers, search engines, router/backbone providers are going to stomp all over your guys. Instead, you provide incentives … that help mold the online culture even before it develops organically on its own. … Lower phone rates will coincide, by my guess, with the break-even point — the point at which Japanese technology catches up with U.S. technology.”

(DSAA takes a closer look at this nexus in Part II of its study “Critical Policy Issues for Electronic Commerce in Japan: Keiretsu Ties that Bind in Cyberspace,” which should be available soon.)

If that sounds like traditional Japanese industrial policy in the virtual sphere, you won’t get much argument from me. But DSAA analysts argue that cyberspace is just the place for foreign companies trying to find customers in Japan.

Once again, the growing presence of women is important. Sorry about the stereotype, but women do shop more online than men do. Almost two-thirds of women shoppers made more than three purchases over a 12-month period, and one-third made between five and nine. Women are more likely than men to pay for Internetdelivered content or similar purchases, and they tend to be willing to pay more for those services than men.

What is important for foreign companies is this: The Japanese online shopper tends to buy from online merchants never encountered outside the Internet. In other words, said Russell Hayward, vice president and chief technology officer at DSAA, in an interview, “people log on to find foreign products.”

The Japan Development Bank concluded that Internet shopping would lead to more purchases of foreign goods when there is a large differential between foreign and domestic prices. Since the staggeringly high costs of setting up a business in Japan have deterred many foreign companies from establishing a presence here, the Net could be the great leveler.

Said Hayward, “This is a historic opportunity for foreign companies to crack the Japanese market. It is time both to build new brands in cyberspace as well as exploit the name recognition of big-brand names.”

(Brad Glosserman)